Page 38 - Investment Advisor February/March 2023

PORTFOLIO PERSPECTIVES

inflation remain above trend but decline equity year. Of course, we didn’t expect 8. Correct: Values-based investing
from 2021 levels. Real GDP declined the carnage to be as severe as it was. And continues to gain share.
from 2021 but wasn’t above trend. the first half of the year was the first in Information is more anecdotal than
Inflation, meanwhile, was above trend history to be down more than 20% while ideal to evaluate this prediction, Doll
but didn’t decline. “Needless to say, earnings expectations moved higher.” wrote, “but it is clear that the dialogue,
nominal growth was significantly above 5. Half correct: Cyclical, value and education and adoption of values-based
trend and above 2021 levels, but the small stocks outperform defensive, investment management is on the
mix — too little real growth, too much growth and large stocks. upswing. We are witnessing more and
inflation — was problematic,” Doll wrote Defensives clobbered cyclicals, value more individuals and institutions desir-
2. Half correct: Inflation falls, but core trounced growth and small versus big ing to line up their portfolios with their
inflation remains stuck at around 3%. remains close, Doll notes. “Economic values,” despite “all the ESG ‘noise.’”
The notion that core inflation has weakness and recession concerns caused 9. Correct: After a 60+ year low in
risen and is stuck accurately reflects defensive [stocks] to beat cyclicals. 2021, federal interest expense as a
the changed environment in the U.S. Rising interest rates, among other things, percentage of revenue begins a long-
economy. Inflation has been falling over allowed value to beat growth. Small term move higher.
the last several months but not below stocks remain cheap versus big ones.” “With interest rates rising as fast
year-end 2021 levels. 6. Correct: Financials and energy as they have in 2022, this prediction
3. Correct: For the first time since outperform utilities and communica- has looked as easy as ‘shooting fish in
1958/1959, 10-year Treasurys provide tion services. a barrel,’ Doll says. With debt rising
a second year of negative returns. Energy was the best sector in 2022 quickly and interest rates unlikely to
The rise in Treasury yields and fall in and communication services the worst, fall much or at all, he adds, “onerous
bond prices this year have been breath- putting this prediction in the win col- consequences are likely to be seen as
taking, Doll says. “On top of last year’s umn. Financials and utilities outper- this trend continues.”
fall, the two-year decline in the price formed but made little difference in this 10. Incorrect: Republicans gain at
of a 10-year Treasury has eclipsed all prediction, Doll says. least 20-25 House seats and barely
modern records. Thankfully, bonds have 7. Correct: International stocks win the Senate.
never had three years in a row of nega- outperform the U.S. for only the sec- “Needless to say, we missed the mark
tive total return.” ond year in the last decade. on this prediction,” Doll wrote, not-
4. Correct: Stocks experience their This could come down to a photo ing that polls going into Election Day
first 10% correction since the pan- finish, Doll says. “As of this writing, made it appear this view was solid. “The
demic and fail to make the gains wide- international stocks are 85 basis points usual mid-term election results of the
ly expected. ahead of U.S. stocks year to date. This incumbent party losing ground, espe-
“We were in a small minority at the close is amazing given the strength of cially with disapproval rates so high, did
beginning of the year arguing for a down the U.S. dollar.” not materialize.”

Jeremy Siegel: Look for Positive Market Surprises in ‘23
Wharton School economist Jeremy Siegel has taken a more bull- margins, he noted. “Everyone who says, ‘Oh my goodness,
ish view on the economy and corporate profits for 2023 than these 2023 (earnings) estimates are way too high,’ might be
many of his peers and recently suggested the Federal Reserve surprised that many of them might turn out to be what profits
may slow its rate-hiking earlier than many expect. “I’ve never are going to be,” the professor emeritus added.
seen so much bearishness. There’s never been a time when, what, Siegel also suggested the Fed is finally understanding that
60% of economists forecast a recession. And when everyone’s on its housing indicator is greatly lagged and housing prices
one side I get very wary,” he said on CNBC in late December, add- are going down. When calculating actual house prices into
ing that the market may be in for some surprises in 2023. inflation numbers, he said, “really inflation disappears. That’s
“2022 was marked by very good job growth and very poor going to get through to the Fed.” While the Fed has indicated
GDP growth and very poor productivity growth. Firms were it’s not done raising interest rates and will keep them high
hoarding workers because they were worried they couldn’t long term, Siegel believes there are reasons to believe the
get them. We may see the opposite” in 2023,” Siegel said story may unfold differently, given that the central bank said
on “Closing Bell: Overtime.” Rebounding productivity would in September 2021 that inflation was transient and that it
put downward pressure on prices and upward pressure on wouldn’t raise rates in 2022. —Dinah Wisenberg Brin

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